SVENSKA HANDELSBM'KEN AND OTHERS ETC. v. INDIAN CHARGE CHROME LTD. AND OTHERS

The Judgment of the Court was delivered by G YOGESHWAR DAYAL, J. 1. Special leave granted in all these three matters. Heard. As the matters have been heard at length, the appeals are being disposed of.

2Copy pinpoint2. All the three appeals arising out of the above said special leave petitions are directed against the 11rder passed by the Single Judge of the H

p. 264 Copy page pinpoint

A High Court of Orissa at Cuttack dated 17th June, 1993 whereby the Single Judge of the High Court dismissed three Civil Revision Petition Nos. 282, 283 and -284 of 1992 filed by defendant No. 4, defendants 5 to 11 and defendants 1 to 3 respectively in Title Suit No. 208 of 1991. All the three civil revision petitions arose out of the common order passed by the Subordinate Judge, Athagarh in proceedings arising out of three applica- B tions filed by the aforesaid set of defendants for stay of the suit filed by the plaintiff invoking Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (hereinafter referred to as 'the Foreign Awards Act').

3Copy pinpoint3. Before we deal with the applications, it would be useful to state a few facts relevant for purposes of the decisions of these appeals.

4Copy pinpoint4. The suit out of which the present appeals arise was filed by the plaintiff (hereinafter referred to as the 'borrower') before the Subordinate Judge, Cuttack for various reliefs against defendants 1 to 3 (hereinafter ! D referrep to as the 'suppliers'); defendants 4 to 11 (hereinafter referred to as the 'lenders'); and defendant No. 12, Industrial Development Bank of India, (hereinafter referred to as the 'guarantor'). Defendant No. 13 in the sujt is M/s. Indian Metals & Ferro Alloys Ltd., (in short 'IMFA')

5Copy pinpoint5. IMFA issued a global tender for setting up a captive power plant, viz., a coal-~ed power plant in Choudwar, Orissa., The tender indicated that credit by the suppliers will be preferred. The suppliers submitted their tenders in this regard. Since the tender indicated that suppliers' credit. for the entire project would be preferred, the suppliers approached defendant No. 4 (one of the lenders) to finance the project and enquiries were made to find out the possibilities for financial assistance by the Swedish Govern- ment in the form of interest at subsidised rates. As a result of negotiations the three suppliers entered into three contracts with the plaintiff.

6Copy pinpoint6. Defendant No. 4 (one of the lenders) formed a consortium of banks with defendants 5 to 11 and an American Bank for financing the project. The American Bank subsequently assigned its interest in favour of one of the defendar.t Banks (lenders). The lenders entered into two credit agreements dated 30th October, 1984 with the borrower. The credit agree- ments were also entered into by defendant No. 4 for itself and on behalf of defendants 5to11. A third credit agreement dated 15th November, 1984 H was also entered into between the borrower and defendant No. 4 (lender)

S.HANDELSBANKEN v. INDIANCHARGECHROMELTD.[DAYAL,J.) 265

in its individual capacity. It is not necessary, for the purposes of present· A proceedings, to mention the quantum of credit agreements except to state that two additional credit agreements were also entered into between the borrower and the lenders supplemental to the first and second credit agreements providing for additional loans. All the credit agreements inter alia purported to provide payments by the lenders to the suppli~rs on B various documents, as provided in the credit agreements, being presented to the lenders and also against a notice of drawdown by the borrower. In relation to the third credit agreement the disbursements were to be made directly to the lenders in respect of the financial cost payable by the borrower upon notice of drawdown by the borrower. c

7Copy pinpoint7. The loans were required to be re-paid by twenty (subsequently amended to eighteen) equal semi-annual (six monthly) consecutive instal- ments. The repayments were required to be made by the borrower without demand or notice. It was specifically provided in the credit agreements that:- D "Any amounts payable by the Borrower shall be paid without set-off or counter claim. The liability of the Borrower to effect any payment under this agreement is thus unconditional and shall not in any way be dependent upon the-performance of the Contracts i.e. the agreements between the Borrower and the Suppliers-Ex- E porters or be affected by any other claim which the Borrower may have against the Exporters or against any other party (natural or legal) collaborating with the Exporters."

The credit agreements also provided: - F "All disputes arising form the provisions of this Agreement or its performance shall be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with these G rules. Arbitration shall take place in Stockholm and be conducted in the English language. The award of the arbitral tribunal is final and obligatory for the parties without any right for-a further appeal or contestation of its fulfilment. The Borrower hereby expressly submits to the jurisdiction of the above mentioned arbitration tribunal." H

p. 266 Copy page pinpoint

8Copy pinpoint8. The credit agreements ·also provided that the borrower shall furnish guarantees in favour of the lenders as security for the loans covering 100% of each of the loans plus interest, costs and fees payable under the credit agreements. As quoted above, the agreements also contained an arbitration clause whi<:h contemplates disputes arising from the agreements to be finally settled by arbitration under the rules of Conciliation and B Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with these rules. The arbitration is provided to take place at Stockholm. ·

9Copy pinpoint9. On 24th June, 1989 the plaintiff (borrower) took over the plant c and on 25th June, 1989 issue a taking over certificate. On 28th July, 1989 the plaintiff authorised defendant No. 4 to disburse the balance 5% of the payment to defendant No. 3 as well.

10Copy pinpoint10. It was on or about April 28, 1991 that the present suit was filed by the plaintiff for: (a) a declaration that the taking over certificate dated 25th June, 1989 is void/voidable instrument and the same may be delivered and cancelled; (b) it be further declared that the plaintiff is entitled to dimunition/extinction of price towards the power plant as mentioned in Annexure 'A' to the plaint, in the alternative, if the court fmds, that any amount is payable to defendants 1 to 11 jointly or severally, the same be directed to be paid as per reschedule of payment to be calculated on the basis of a cash flow basis on actual generation as determined on equiry; (c) a decree of declaration that the guarantees obtained from defendants 12 and 13 by defendants 1 to 11 are void/voidable instruments and ought ~o be delivered and cancelled; ( d) a decree of perpetual injunction restrain- F ing defendants 12 and 13 from making payments dated 30th April, 1991 and payments falling due on subsequent dates under any guarantee to defendant No. 4 and/or defendant Nos. 4 to 11; and (e) a decree of perpetual injunction restraining defendants 4 to 11 from recalling the loan and/or taking any steps from recovering the said loan either in full or in part, etc. etc. G

11Copy pinpoint11. On receipt of summons in the suit and notice on the application for interim injunction filed by the plaintiff (borrower); defendant Nos. 1 to 3 (suppliers) did not enter appearance. Defendant No. 4 (lender) entered appearance by power of attorney dated 28th June, 1991 specifically in H Miscellaneous Case No. 143 of 1991 i.e. in relation to the application for

S.HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL,J.) 267

interim injunction without any reference to the main suit. By this power of A attorney defendant No. 4 appointed S/Shri A. Misra, H.P. Rath and P.N. Misra, Advocates on their behalf in Miscellaneous Case No. 143 of 1991. Before filing of the power of attorney, defendant No. 4 also wrote to the plaintiffs counsel objecting to the jurisdiction of the court itself by letter dated 31st May, 1991 and also sent a copy of this letter to the Court opposing the order of ad interim injunction dated 25th April, 1991 whereby B · the Subordinate Judge, Cuttack had injuncted defendant No. 12 from making payments to defendant No. 4. The letter dated 31st May, 1991 reads thus:

"SVENSKA HANDELSBANKEN c Stockholm, Sweden

May 31, 1991

BY COURIER D Mr. Rajen Mahapatra Advocate, 7-A/3, Girdhar Apartments, Feroz Shah Road, New Delhi-110 001. E India.

Dear Sir,

Re: Order of injunction dated 25.4.1991 by the learned Sub-or- dinate Judge, 1st Court, Cuttack, Orissa in Misc. Case No. F 143 of 1991 arising out of T.S. No. 208 of 1991.

We have received two letters from you, both dated 27th April, 1991, in respect of the above matter. G The first was a short covering letter and the second was enclosed with it. The second quotes the terms of an injunction apparently granted in the above matter. Enclosed with it was a copy of what appears to be the notes of the Honourable Judge.

We have never received anything further, either from you or from H

p. 268 Copy page pinpoint

A the Court. This is puzzling.

What is even more puzzling is how your clients could have made such an application, and how it could have been granted, when the Honourable Court quite clearly has no jurisdiction over us as a Swedish corporation with no presence in India, or over any dispute B between us and your client.

Your clients and we signed three main credit agreements under which your clients' borrowings have taken place. Each of those agreements contained the following clauses: c (A) "All amounts payable by the Borrower under the Agreement shall be paid without set-off or counterclaim. The liability of the Borrower to -effect any payment under this Agreement is thus unconditional and shall not in any way be dependant µpon performance of the Contracts or be affected by any other claim which the Borrower may have against the Ex- porters or against any other party (natural or legal) col- laborating with the Exporters."

(B) "This Agreement shall be deemed to be made under and shall be construed in accordance with and governed in all respects by Swedish law."

(C) "All disputes arising from the provisions of this Agreement or its performance shall be finally settled by arbitration under the Rules of Concilliation and Arbitration of the International F Chamber of Commerce by three arbitrators appointed in accordance with these rules. Arbitration shall take place in Stockholm and be conducted in the English language. The award of the arbitral tribunal is final and obligatory for the parties without any right for a further appeal or contestation of its fulfilment. The Borrower hereby expressly submits to the jurisdiction of the above mentioned arbitration tribunal."

In the light of the above we find it incomprehensible how your client can seek to drag us into whatever dispute which he may have with the builders of the power plant. Nor do we understand how you can wrongly seek the circumvent the clearly provided sole

S.HANDELSBANKEN v. INDIANCHARGECHROMELTD.(DAY.Ai,J.) 269

forum, namely arbitration before the International Chamber of A Commerce, with the hearings to be in Stockholm.

We are sending a copy of this letter to the Honourable Court in Cuttack.

Yours faithfully, B Svenska Handelsbanken

sd/- sd/- Lena Bertllsen Gudrun Lundin Hollinder" c

12Copy pinpoint12. The substance of the letter is that the contracts contained att arbitration agreement which provided that all disputes arising from the provisions of Agreement or its performance shall be finally settled by arbitration under the Rules of Concilliation and Arbitration of the Inter- national Chamber of Commerce by three arbitrators appointed in accord- D ance with these rules., The arbitration agreement was agreed to be governed by Swedish Law.

13Copy pinpoint13. It appears that an application dated 28th June, 1991 was filed by defendant No. 4 for vacating the interim injunction granted in Misc. Case No. 143 of 1991 and it was this application with which the aforesaid power E of attorney dated 28th June, 1991, specifically mentioning Miscellaneous Case No. 143 of 1991, was filed in court. Written arguments '!Vere also filed on 31st July, 1991 opposing the continuation of the interim injunction.

14Copy pinpoint14. It also appears that on the same date i.e. 31st July, 1991 an application was filed purporting to be on behalf of defendant Nos. 4 to 11 F (lenders), without any power of attorney from defendants 5 to 11, stating inter alia "that these defendants are foreign banks and are residing outside the country, therefore six weeks time may kindly be granted enabling these defendants to file their written statement." It is not clear from the applica- tion which Advocate had signed it. G

15Copy pinpoint15. It appears that another application dated 24th August, 1991, purporting to be on behalf of defendants 4 to 11, without any power of attornef in favour of the counsel in the suit, was filed again asking for time of eight weeks being granted to defendants 4 to 11 to file their written statement. H

270 SUPREME COUE.T REPORTS [1994) 1 S.C.R.

16Copy pinpoint16. On or about 1st November, 1991 the defendant No. 4 filed an - application purporting to be under Section 3 of the Foreign Awards Act for stay of the suit. Another application under Section 3 of the Foreign Awards Act was also filed on behalf of defendants 5 to 11 supported by a separate power of attorney in favour of the counsel in the suit in support of the applications under Section 3 of the Foreign Awards Act. B

17Copy pinpoint17. In reply to the applications filed on behalf of defendant No. 4 and defendii.nt Nos. 5 to 11 it was inter aliil pleaded on behalf of the plaintiff that the applications under Section 3 of the Foreign Awards Act were not maintainable and that defendant No. 4 had taken steps in the proceedings and having participated in the proceedings with a view to contest the same on merits, it is not entitled to file the present application. Reference was made to the applications dated 28th June, 1991 and 24th August, 1991. Reference was also made to the applicatio~ ·dated 24th August, 1991 on behalf of defendants 5 to 11 as well apart from taking other pleas to oppose the applications for stay.

18Copy pinpoint18. During the pendency of the applications under Section 3 of the Foreign Awards Act, in reply to the objections filed by the plaintiff to the application, an affidavit was filed on behalf of defendant No. 4 of Ms. Barbro Margareta Lundberg which denied having taken any steps in the proceedings so as to disentitle defendant No. 4 from making the applica- tion under Section 3 of the Foreign Awards Act. It was deposed t~us:

(a) It is denied that D-4 has taken any step in the proceedings so as to disentitle it from moving this Application under Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 F ("the 1961 Act") for the following reasons:

(i) D-4 engaged the servi~es of Shri D.A. Misra, ("Mr ..Misra") Advocate of Orissa High Court, in or about 19 June, 1991. Extensive discussions were held with Mr. Misra at the offices of Mis Clifford Chance in London (Solicitors of D-4) when: it was made clear to Mr. Misra that under no circumstances should he take any steps whatever which might result in D-4 being deemed to have submitted to the jurisdiction of the /

Indian Courts or to have entered into the merits of the dispute in Suit No. 208of1991 because D-4 wanted to reserve to itself the option of compelling Plaintiff to arbitrate the dispute, as

S. HANDELlBANKEN v. INDIAN CHARGE CHROME LTD. (DAYAL, J.) 271

agreed. D-4 in the presence and with the help-of Mr. Misra A prepared an Affidavit by Ms. Helene Melin, an officer of D-4 contesting the jurisdiction of the Indian Courts and relying upon the arbitration provisions contained in the Credit Agreements. On behalf of D-4, Mis Clifford Chance, by their letter of instructions dated 19 June, 1991 expressly instructed B Mr. Misra to take no steps in the action nor to do anything else which might be construed as a submission to the juris- diction of the Indian courts in respect of this matter. This letter was personally handed over to Mr Misra during the course of the meetings held in London. In the presence of two officers of D-4 and their said English Solicitors Mr. Misra C , read the letter and accepted these instructions. He assured his clients D-4 that he would act in accordance with these very clear and explicit instructions. A copy of the letter dated 19th June, 1991 is annexed as Annexure 'A'.

(ii) The Vakalatnama issued by D-4 to Mr. Misra in the injunction proceedings (Misc. Case No. 143 of 1991) is restricted com- pared to the normal form. This was done intentionally and WllS discussed and agreed with Mr. Misra at the meetings in London in June 1991. The usual right of substitution was deleted because D- 4 wanted to control who was to represent it in the injunction proceedings. Mr. Misra indicated what names he wanted inserted in the power of attorney, and wrotf. them down. D-4 asked questions about these persons and Mr. Misra gave informations about them which satisfied D-4 . ...........D-4 intended to authorise the Mr. Misra that it met in F London to defend the injunction., not any other person who may be called Misra. Subsequently D-4 has found that "Misra" is a common name in Cuttack. D-4 submits that it is not bound by actions taken in its name by Mr. Ashok Misra, or any other person who has not been authorized by it in the Vakalatnama. G (iii) Again, by letters dated 17th July and 1 August, 1991, Mis Clifford Chance instructed Mr. Misra not to take any steps whatever in either the Misc. Case Application for an injunc- tion brought by the Plaintiff or in the Main Suit, without instructions. They repeated their previous express instruc- H

272 SUPREMECOURTREPO~ (1994] 1 S.C.R.

A tions that under no circumstances should steps be ~aken in the action. Copies of the said letters dated 17th July and 1 August, 1991 is annxed as Annexure 'B'.

(iv) It appears that on or about 3i July, 1991 a purported "applica- tion" was filed before ·this Hon'ble Court seeking time to file 1

B a written statement on behalf of D-4. It is submitted that this purported "application was filed contrary to the express prior instructions of D-4 and in glaring breach of duty. He further purported to apply on behalf of Respondents 5 - 11. As is plain from the Annexures and in particular the V akalatnama. c Mr. Misra was only instructed by and on behalf of D-4, and no one else.

(v) It further appears that a second "application" was filed on 24 August, 1991, seeking additional time to file a Written State- ment. Again, neither D-4 nor their English Solicitors were D informed in advance as to the filing of this application, and the filing of the document took place contrary to the express instructions of both. Indeed on or about 13 August, 1991 a representative of M/s Clifford Chance travelled from Delhi to Cuttack with Mr. Misra to attend the court hearing on 14 E August, and also held meetings with Mr. Misra in Delhi and Cuttack on 13, 14 and 15 August. During those meetings it was repeatedly stressed to Mr. Misra how important it was for D-4 to retain its ability to insist on arbitration as agreed by the parties in writing, and accordingly that no step in the action be taken on behalf ofD-4. Mr. Misra made no mention of the impugned application.

(vi) D-4 oruy became aware of the filing of the "application" dated 31 July, 1991 at the en.d of August, 1991, and immediately by their Solicitor's letter dated 2 September, 1991 called upon G Mr. Misra to explain.

It is noteworthy, and very surprising that no mention was made of this "application" during the series of meetings held in India in mid-August referred to above, or in correspon- H dence or later telephone conversation.

S.HANDELSBANKEN \'. INDIANCHARGECHROMELTD.[DAYAL,J.] 273

(vii) By his letter dated 8 September 1991, Mr. Misra informed A D-4's English Solicitors that the filing of an application for adjournment for the purposes of filing a Written Statement does not amount to a step in the action. A copy of that letter is annexed as Annexure 'C'. No mention was made in this letter of the second "application" dated 24 August, 1991. B (viii) The first time D-4 or its English Solicitors became aware of the second 'application" of 24 August, 1991 was when it was mentioned in Plaintiffs Objection filed herein. It came as a complete surprise. c (ix) As a result of his Actions D-4 discharged Mr. Misra as their Advocate by letter dated 16 October 1991. No reply was ever received to this letter. However, Mr. Misra sent D-4 an account for his services under cover of a letter dated 31 December 1991, (Annexure Da). D-4 has refused to pay this account in all the circumstances, (Annexure Db.) D (b) The V akalatnama granted to D-4's advocate was strictly limited by deliberate choice. It is annexed hereto as An"'lexure E.

The full circumstances surrounding the grant of the Vakalatnama, E were set out in sub-paragraph (a) above. It will be observed that the V akalatnama is in favour of only the following persons "Sri A. Misra, H.P. Rath, P. Panda, G. Rath, B. Das Advocates". There is no right to delegate. The persons who signed the two "application" ,dated 3J.July and 24August 1991 respectively was not authorized by D-4 in its Vakalatnama to act on its behalf. F Those documents are accordingly unauthorised, a nullity and void. It is submitted that neither was an "application" and accordingly neither constitutes a step in the action.

(c) It will be observed, further, that the Vakalatnama is specifically given only in respect of Misc. Case No. 143 of 1991, and no other court proceedings. This was also deliberate, because D-4 was at all times anxious to ensure that it preserved its right to have any disputes settled by arbitration as agreed, as can be :;een from the correspondence annexed hereto and referred to above, and the H

274 SUPREME COURT REPORTS [1994] 1 S.C.R.

A further letters dated 7 August, 19 August and 4 October, 1991 annxed hereto and marked Annexure 'F'. The two impugned "applications" are brought in Title Suit 208 of 1991. D-4 did not authorize Mr. Misra to act in Title Suit 208 of 1991. No Vakalat- nama authorizing any person to act on behalf of D-4 in Title Suit 208 of 1991 was filed until M/s Swarup John & Co. filed their B Vakalatnama on........... 1991. Accordingly, it is submitted that the impugned applications are each a nullity, void and of no effect, and therefore could not be a step in the action.

(d) It will be observed, further, that the Vakalatnama as filed is c granted by D-4 only. D-5 - 11 are not parties to that Vakalatnama. D-5 - 11 had not been properly served in any of these proceedings in. July and August 1991 when the impugned applications were filed. They had not issued any Vakalatnama not were any Vakalatnama's either given to Mr. Misra or filed on behalf of D-5 - .11, and for this reason, also, the impugned applications are void and of no effect.

(e) In all these circumstances it is further or alternatively submitted that the Hon'ble Court erred on both occasions in granting time on the basis of each of the two impugned applications. It is submitted that the Hon'ble Court had no power to act on applica- tion brought by persons without authority and/or in the wrong proceedings and/or on behalf of the wrong parties and/or in response to void applications, and accordingly the Hon'ble Court made a serious mistake;''

F Alongwith the affidavit all the documents mentioned in it were also filed.

19Copy pinpoint19. The trial court, however, dismissed the application for stay filed by defendant No ..4 and defendants 5 to 11 by its order dated 23rd June, G 1992.

20Copy pinpoint20. At this stage it would be useful to state the facts in relation to an application filed under Section 3 of the Foreign Awards Act on behalf of defendants 1 to 3 (suppliers).

21Copy pinpoint21. It will be noticed that so far as the suppliers are concerned, they

>... S.HANDEL5BANKEN v. INDIANCHARGECHROMELTD.[DAYAL,J.) 275

never pat _in any appearance to oppose the application for ad interim A injunction that the plaintiff had filed against defendants 4 to 12. They, however, filed the application purporting to be under Section 3 of the Foreign Awards Act for stay of the suit in view of three separate contracts entered into between the borrower and the suppliers containing arbitration clauses. B

22Copy pinpoint22. The application filed on behalf of defendants 1 to 3 (suppliers) was also dismissed by the trial court on the same date.

23Copy pinpoint23. The trial court relied on the decision of this Court in Renusagar Power Co. Ltd. v. General Electric Company and Another, A.I.R. (1985) S.C. C 1156, and noticed the conditions required for stay of Suit under Section 3 of the ·Foreign Awards Act as held by this Court in the said case, which read as under:

(i) There must be an agreement to which Article II of the Con- vention set forth in the Schedule applies; D (ii~ a party to that agreement must commence legal proceedings against another party thereto;

(iii) the legal proceedings must be "in respect of any matter agreed to be referred to arbitration" in such agreement; E

- (iv) the application for stay must be made befort>. filing the written statement or taking any other step in the legal proceedings;

(v) ·the Court has to be satisfied that the agreement is valid, operative and capable of being performed; this relates to the satisfaction about the 'existence and validity' of the arbitration -1 agreement; and

(vi) the Court has to be satisfied that there are disputes between the parties with regard to the matters agreed to be referred; this relates to effect (scope) of the arbitration agreement touching the issue of arbitrability of the claims."

24Copy pinpoint24. After noticing the analysis of Section 3 of the Foreign Awards Act in Renusagar's case it took the view that all the defendants have failed to satisfy condition numbers (i), (iii), (v) and (vi) and defendant No. 4 have H

276 SUPREME COURT REPORTS [1994] 1 S.C.l?..

A not satisfied/fulfilled condition ·No. (iv) also, by its impugned judgment dated 23rd June, 1992. ·>--

25Copy pinpoint25. Three sets of revision petitions were filed before the High Court - one on behalf of defendants 1 to 3 (suppliers) second on behalf of defendant No. 4 (one of the lenders) and third on behalf of defendants 5 B to.11 (other lenders). The High Court by its impugned order dated 17th June, 1993 dismissed all the three revision petitions. It took the view that condition Nos. (i); (ii); (iii) and (vi) as laid down by this Court in the aforesaid case of Renusagar were satisfied in respect of all the defendants. It, however, took the view that so far as condition No. (v) is concerned it is not satisfied in respect of all the defendants. It held that the agreements for arbitration by different arbitrators one between defendants 1 to 3 and the borrower (plaintiff) and the other between the borrower .(plaintiff) and lenders by other set of arbitrators make the agreements inoperative and are not capable of being performed. The High Court, however, again affirmed the finding of the trial court that defendant No. 4 has not satisfied condition No. (iv) in as must as before filing the application for stay, defendant No. 4 had taken other steps in the legal proceedings.

26Copy pinpoint26. There was no dispute before us so far as the lenders' applications were concerned that they were governed by Section 3 of the Foreign Awards Act for the purpose of stay of the suit as the arbitration was contemplated under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, which was to take place in Stock- holm and the parties rights were to be governed by Swedish Law. .There- F fore, we are dealing first with the question of compliance of Section 3 of the Foreign Awards Act on behalf of defendant No. 4 and defendants 5 to

11. Section 3 of the Foreign Awards Act reads as under: - ' •• "3. Stay of proceedings in respect of matters to be referred to arbitration - Notwithstanding anything contained in the Arbitration G Act, 1940, or in the Code of Civil Procedure, 1908, if any party to an agreement to which Article II of the Convention set forth in the Schedule applies, or any person claiming through or under him commences any legal proceedings in any court against any other party to the agreement or any person claiming through or under him in respect of any matter agreed to be referred to arbitration

S. HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL, J.) 277

in such agreement, any party to such legal proceedings may, at any time after appearance and before filing a written statement or taking any other step in the proceedings, apply to the Court to stay the proceedings and the Court, unless satisfied, that the agreement is null and void, inoperative or incapable of being performed or that there is not, in fact, any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings."

27Copy pinpoint27. Condition No. (iv) as culled out from the decision in the case of Renusagar (supra) is really not complete. The condition really is that where one of the parties to the arbitration agreement, inspite of it, commences c any legal proceedings in any court against the other party, any party to such legal proceedings may, at any time after appearance and before filing a written statement or taking any other step in the proceedings, apply to the Court to stay the proceedings. One of the· conditions for applicability of condition No. (iv) is that there must be appearance on its behalf before court in which the proceedings are pending and after filing appearance, but before filing the written statement or taking other steps in those proceedings, the party concerned must apply for stay. The condition of putting in appearance is equally important. It is clear from the discussions of the facts by the trial court as well as in view of the affidavit filed on behalf of defendant No. 4 of Ms. Barbro Margareta Lundberg and the express instructions conveyed to its counsel with the power of attorney dated 28th June, 1991 which was specifically limited to the Misc. Case No. 143 of 1991, it limited the act of appearance merely to oppose the applica- tion for ad interim injunction operating against defendant No. 4. It is again clear that the party concerned must put in appearance in the suit before applying for stay under Section 3 of the Foreign Awards Act. At the stage applications purporting to be on behalf of defendants 4 to 11 were filed on 31st July, 1991 and 24th August, 1991, seeking time to file written state- ment, no appearance had been filed on behalf of defendant Nos. 5 to 11 at all and no appearance had been filed in the suit on behalf of defendant G No. 4. It will again be observed that the Vakalatnama dated 24th June, 1991 was specifically given in respect of Misc. Case No. 143of1991 and no other court proceedings. No power of attorney was filed on behalf of defendant No. 4 in the suit at all with either of the two applications seeking time for filing written sratement. The applications for seeking time were filed con- H

278 SUPREME COURT REPORTS (1994) 1 S.C.R.

A trary t-0 the express instructions given to the Counsel appearing on behalf of defendant No. 4 vide communication dated 19th June, 1991 as is clear from paragraphs 1 to 3 thereof which are as under: - \

" ,· "1. T'...te instructions at present are to contest only the jurisdiction of the court in Cuttack over Defendants 4 to 11 in the pending B proceedings.

£.Accordingly, you are under no circumstances to take any step in the action (in the technical sense) or to do anything else which might be construed as a submission to the jurisdiction of any Indian c court in respect of this matter.

3. Clients and the Syndicate of banks they represent consider this matter to be so important that you are not to diven from these instructions without express written instructions either from Svenska Handelsbanken (in the person of Mrs. Lundberg or Mrs. D Malin) or from my firm."

28; The relevant part of second communication dated 17th July, 1991 -+-- which was sent by Fax reads as follows: -

"May I please remind you that your present instructions- are only E to bring the pending Application relating to jurisdiction in the Court of the Subordinate Judge in Cuttack, and not to take any other steps either in that Application or in the main action. Shonld we lost and you wish to advise an Appeal, please do so and seek written jnstructions from us." F

29Copy pinpoint29. The express instructions were a~ain given to the counsel on 1st August, 1991 by Fax, relevant part whereof reads as under: -

"As I understand the position we are awaiting a decision of the lower court on Monday 5 August. Whatever that decigion may be your express instructions remaiµ. to take no qther step whatever in either the application or the action without the written instrui;tions of this firm or the clients. Under no circumstances should any step be taken in the action which would submit either Svenska or any of the other members of the Banking Consortium to the jurisdiction of the Indian Courts."

A., S,HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL;J.) 279

30Copy pinpoint30. We may als<> at this stage qnote the actual power of attoraey executed 'on behalf of defendant No. 4 in Misc. Case No. 143 of 1991 which reads:

"Svenska Handelsbanken

FORM OF VAKALATNAMA B

IN THE COURT OF THE SUBORDINATE JUDGE, CUTIACK

Miscellaneous Case No. 143 of 1991

BETWEEN c INDIAN CHARGE CHROME LTD. versus ASEA STAL AB & ORS.

Know all men by these presents, that by this Vakalatnama. D We, Svenska Handelsbanken, Kungstradgardsgatan 2, S-106 70 Stockholm, Sweden.

Opposite party No. 4 in the aforesaid Case, do.hereby appoint and retain Sri A. Misra, H.P. Rath, P. Panda, G. Rath, B. Das Advo- E cates to appear for us, in the above case 'and to conduct and prosecute (or defend) the same and all proceedings that may be taken in respect of any application connected with the same, or any decree or order passed therein including all applications for return of documents or receipt of any moneys that may be eayable F to us in the said case and also in applications for review, appeals under Orissa High Court Order and in applications for leave to appeal to Supreme Court.

Dated 1991 G Received from the executant(s) satisfied and accepted as I hold no brief for the other side.

Advocate Svenska Handelsbanken sd/- sd/- Astor Olsson Lars Kinander H

280 SUPREME COURT REPORTS [1994) 1 S.C.R.

A Accepted as above

Advocate Signatures of the Executants

Accepted as above

B Advocate

Accepted as above

Advocate

31Copy pinpoint31. It will be noticed that this power of attorney is not is usual terms which normally authorise a counsel to enter into compromise or to appoint any other counsel on his behalf. The power of attorney is specifically in Misc. Case No. 143 of 1991. Again it contains no power on the counsel to appoint any other counsel on his behalf in the application even.

32Copy pinpoint32. A combined reading of the correspondence as disclosed in the affidavit filed on behalf of defendant No. 4 shows that no power of attorney has been executed on behalf of defendant No. 4 in favour of any counsel so far as the main suit is concerned. The counsel was given express instructions not to put in appearance or take any step in the proceedings relating to suit. If the applications dated 31st July, 1991 and 24th August, 1991 had been moved with either express ot implied instructions of the lender, defendant No. 4, .there can be no doubt that it would normally amount to taking legal steps in the proceedings relating to suit. But in view of the power o.f attorney being merely to the proceedings in Misc. Case No. 143 of 1991 coupled with the express instructions to the contrary, the counsel had no power or authority to file any application seeking time for filing written statement. The filing of the two applications is totally ultra vires the authority and specific instructions of defendant No. 4 and was thus totally unauthorised and of no effect on defendant No. 4.

33Copy pinpoint33. As late as 1930 the Privy Council in the case of Sourendra Nath and Others v. Tarubala Dasi, A.I.R. (1930) P.C. 158, made the following two observations at page 161 of the report: -

"Two observations may be added. First, the implied authority of counsel is not an appendage of office, a dignity added by the Courts H to the status of barrister or advocate at law: It is implied in the

S.HANDELSBANKEN v. INDIANCHARGECHROMELID.[DAYAL,J.) 281

interests of the client, to give the fullest beneficial effect to his A ~. employment of the advocate. Secondly, the implied authority can always be countermanded by the express directions of the client. No. advocate has actual authority to settle a case against the express instructions of his client. If he considers such express instructions contrary to the interests of his client, his remedy is to return his brief." B

34Copy pinpoint34. The Supreme Court also had an occasion to examine the power of the pleader to enter into a compromise without the consent of the "--{ concerned party in the case of Smt. Jamilabai Abdul Kadar v. Shankarlal Gulabchand and others, [1975) 2 S.C.C. 609. It upheld the implied power of the Advocate as well as the Pleader to compromise but in paragraph 9 c of the judgment observ.;d that one thing is certain "that if a suitor counter- mands his pleader's authority to enter into compromise or withholds, by express recital in the vakalat, the power to .compromise the legal proceed- ing, the pleader (or, for that matter, the advocate) cannot go against such advice and bind the principal, his client. This is as illegal as it is unprofes- D - .... sional."

35Copy pinpoint35. We are thus constrained to reverse the findings of both the trial court as well as the High Court regarding non-satisfaction of condition No. (iv) as noticed in the case of Renusagar (supra) by defendant No. 4. On the other hand we are constrained to hold that no appearance whatsoever was made by defendant No. 4 so far as the suit is concerned and in fact the instructions were to the contrary so far as the counsel is concerned. He acted contrary to express instructions and defendant No. 4 cannot be bound by such unauthorised "acting" by its advocate contrary to the express instructions. Since there was no appearance also on behalf of defendant No. 4 in the suit no question arose of taking any steps in such proceedings and, therefore, condition No. (iv) as contemplated in the case of Renusagar (supra) is full satisfied by defendant No. 4 as well as by defendants 5 to 11.

36Copy pinpoint36. It will be noticed that the only other finding of the High Court G against defendant No. 4 for declining stay of the suit is common with other defendants/appellants before us, namely that they have not satisfied condi- ~ ' tion No. (v) as spelt out in the aforesaid case of Renusagar.

37Copy pinpoint37. The High Court at the end of paragraph 8 of its judgment gave the following findings:_: H

282 SUPREME COURT REPORTS [1994] 1 S.C.R.

A "Thus, factually, I am satisfied that Article II of the convention set forth in the schedule to the Foreign Awards Act applies to each of the agreements with the three sets of applicants. Suit out of which these Civil Revisions arise as a legal proceedings initiated by plaintiff which is a party to each of the agreements with the applicants. Such suit relates broadly to defects in the equipments B supplied, erection and commission of the power plant by defendant Nos. 1 to 3 and non-satisfaction of terms for paymeat to defendant Nos. 1 to 3 by defendant No. 4. These are all in respect of matters agreed to be referred to arbitration as per the clause to that effect in the various agreements. By alleging fraudulent misrepresenta- c tions in the plaint against the applicants, plaintiff cannot avoid the arbitration clauses in view of the broad language of the different clauses, where question of fraudulent representation can also be effectively answered in the award to be binding on the parties to the agreement. Therefore, conditions (i), (ii), (iii) and (vi) as laid down by the Supreme Court for application of Section 3 are satisfied in this case in respect of all the applicants."

Again in paragraph 16 of the judgment it was observed thus: -

"It is next to be examined whether condition No. (v) is satisfied in respect of these thr~e applications. There can be no doubt that each of the agreements standing by itself is valid, operative and capable of being perfonned. Thus, the condition relating to existence and validity of each of the agreements are satisfied. But when all the agreements are put together, a different situation arises." F

38Copy pinpoint38. We are concerned with the validity, operativeness and capability of being performed of the arbitration agreements - (1) between the bor- rower and the suppliers and (2) between the borrower and the lenders. The finding of the High Court is that they are valid, operative and capable of being performed if left w1th themselves between the borrower and the G suppliers on the one hand and between the borrower and the lenders on the other. The High Court, however, took the view that they have became inoperative as the agreement with the lenders is before one set of ar- -~ bitrators in a proceedings to be held at Stockholm i.e. against the lenders and before other set of arbitrators in proceedings to be held at Paris i.e. H against the suppliers, though, the b~dy, which is to conduct the arbitration

S.HANDELSBANKEN v. INDIANCHARGECHROMELTD.(DAYAL,J.) 283

proceedings is the same. This make the agreements either invalid, inopera- A tive or incapable of being performed.

39Copy pinpoint39. The above extracts and reasoning of the judgment of the High Court show that each of the three defendants 1 to 3 had satisfied all the requirements of Section 3 of the Foreign Awards Act and each was entitled to have the suit proceedings stayed against them so that the disputes could B be resolved only by the Foreign arbitration proceedings stipulated by them with the plaintiff in their respective arbitration agreements.

40Copy pinpoint40. The only ground given by the High Court for refusing the stay of the suit against defendants 1 to 3 is as mentioned earlier. The High Court C has also pointed out that since the plaint does not make severable allega- tion::. against different defendants who are parties to different contracts, with different arbitration agreements and the allegations made by the plaintiff against different defendants are such that they cannot be separated from each other and since the arbitrations between the plaintiff and different defendants may have to go to different arbitrators, all the arbitra- D tion clauses must be treated as having become inoperative. It has further been observed by the High Court that if all the agreements containing arbitration clauses with different defendants had envisaged only one ar- bitrator for adjudicating all the disputes,. the fact that there were several agreements with the different defendants would not have effected the E matter and the award given by common arbitrators could have bound all the parties in the suit.

41Copy pinpoint41. It appears to us that the aforesaid reasoning of the High Court --"'f is strained and totally erroneous. It also amounts to disregarding the mandatory provision of Section 3 of the Foreign Awards Act. F

42Copy pinpoint42. For purposes of the present case we are, for the present, con- sidering merely the applications for stay of the suit filed on behalf of the lenders. It is clear from their applications that all the conditions envisaged for the applicability of Section 3 of the Foreign Awards Act are fully G complied with.

---..... 43. The plaintiff by merely entering into other contracts with different parties cannot prejudice or defeat the rights of the different party under the different contract, particularly when the right to foreign arbitration has been provided by Parliament as an indefeasible right in which the court, H

284 SUPREME COURT REPORTS [1994] 1 S.C.R.

A does not have any kind of discretion.

44Copy pinpoint44. The arbitration is contemplated as per Section 3 of the Foreign Awards Act. The plaintiff by filing a plaint, cannot make. the arbitration clause invalid or inoperative. Therefore, the finding of the High Court that the arbitration agreements have become inoperative and incapable of being B performed or invalid is erroneous in law and, therefore, must be set aside.

45Copy pinpoint45. Mr. Venugopal, learned counsel for the borrower/plaintiff referred us to clause 18 of the agreement so for as the lenders are concerned which reads as under: - c "18. GOVERNING LAW : JURISDICTION

18.02 All disputes arising from the provisions of this Agreement or its performance shall be finally settled by arbitration under the Rules of Conciliation and Arbitration of the International Cham- ber of Commerce by thre~ arbitrators appointed in accordance with these rules. Arbitration shall take place in Stockholm and be conducted in the English language: The award of the arbitral tribunal is final and obligatory for the parties without any right for a further appeal or contestation of its fulfilment. The Borrower hereby expressly submits to the jurisdiction of the above mentioned arbitration tribunal.

18.03 Notwithstanding the provisions of the foregoing Clause, the Lender reserves the right to commence proceedings against the Borrower in the Courts of India or Sweden or the United Kingdom or the State of New York and the Borrower he.reby expressly submits to the jurisdiction of such courts.

18.04 The Borrower hereby irrevocably appoints the Ambassador of India to Sweden as its process agent to receive service of any · proceedings on its behalf."

46Copy pinpoint46. Mr. Venugopal submitted taat in view of clause i8.03 there is no arbitration clause at all in the contracts governing the lenders as one party alone is bound by such an agreement and the other is not bound by such agreement, the agreement is not an arbitration agreement. It was submitted that inasmuch as clause 18.02 of the contract declares "the borrower hereby H expressly submits to the jurisdiction of the advementioned arbitration

S.HANDELSBANKEN v. INDIANCHARGECHROMELlD. [DAYAL,J.] 285

tribunal" but clause 18.03 through a non-obstante clause relieves the lenders . A of their duty to have the disputes settled through arbitration and authorises the lenders to commence proceedings in the courts of India or any other country as the lenders may determine. It was submitted that it is only in the agreement of defendant No. 4 that instead of any other country, which is struck off, Sweden, the United Kingdom or the State of New York are B mentioned. However, clause 18.04 makes it clear that the real purpose of rendering clause 18.02 inapplicable was to enable the -lenders to sue the borrower in Sweden. It was submitted that where the arbitration clause is - '(- rendered inapplicable to a party to the dispute at his choice, the said clause is no arbitration clause at all. c

47Copy pinpoint47. It will be noticed that it is totally a new point urged on behalf of the plaintiff borrower that there is no arbitration clause so far as defendant No. 4 and defendants 5 to 11 are concerned.

48Copy pinpoint48. Since it is a disputed question of fact, we ought not to allow it to be raised for the first time. However, the arbitration agreements are before D us and the clause is admitted. Defendant No. 4 has through out been relying upon clause 18.02 of the contract and still is ready and willing to have the dispute settled by arbitration under the said clause, should the plaintiff raise it before the ICC in accordance with clause 18.02. It is the plaintiff who is resisting arbitration and once the suit instituted by it in E India is stayed, it is for the plaintiff to have the matter resolved by arbitration.

49Copy pinpoint49. Clause 18.02 of the contract is the arbitration agreement. It ' -1' clearly provides that "all disputes .... shall be finally settled by arbitra- tion.... the award of the arbitral Tribunal is final and obligatory for all purposes without any right for a further appeal or contestation of its fulfilment...." Both parties are, therefore, required to have the disputes settled by arbitration and both parties are bound by the award.

50Copy pinpoint50. It is significant to note that in the present case, no dispute is being raised by defendant No. 4. It is only the plaintiff who is disputing its libaility to pay.

51Copy pinpoint51. When parties agree to have their disputes settled by arbitration it does not mean that both have bound themselves not to go to court to have the disputes settled. At page 163 of the Russel on Arbitration 20th H

286 SUPREME COURT REPORTS [1994] 1 S.C.R.

A Edition it is stated that; "a party to a contract to refer disputes to arbitra- tion has a perfect right to bring an action in respect of those disputes, and the court has jurisdiction to try such disputes. Any provision to the contrary would be an ouster of the jurisdiction of the Courts."

52Copy pinpoint52. Lord Macmillan in the House of Lords decision in Heyman v. B Darwins, (1942) A.C. 356 at 373 = 166 L.T. 306 at 312 pointed out as under:-

"I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. c It is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde. But the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that if any dispute arises with_ regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution."

53Copy pinpoint53. It may be that even after entering into an arbitration clause any party may institute lega:i. proceedings. It is for the other party to seek stay of the suit by showing the arbitration clause and satisfying the terms of the provisions of law empowering the court to stay the suit. Clause 18.03, ', therefore, merely states what is otherwise the legal position. The object of clause 18.03 is to reserve to defendant No. 4 the right to suit for money advanced. It is intended to be exercised in cases where there is no dispute whatsoever but still payments have not been made. These are standard ......,._ .. F clauses in all credit agreements. Clause 18.03 gives an additional right. To the extent this clause is exercised in cases where there are disputes, it would be the exercise of a legal right and ~oth parties have agreed that the borrower will submit to the jurisdiction of the court. In such an eventually defe-!ldant No. 4 would have elected to exercise the right under clause 18.-03, which is in addition to and not in derogation of the arbitration clause G in Clause 18.02. As the arbitration clause remains untouched by clause 18.03, if defendant No. 4 was to sue the plaintiff under clause 18.03 for recovery of its. loan, it may be open to the plaintiff (borrower) to apply u.nder Section 3 and seek stay of the suit. The stay of the suit could be granted notwithstanding clause 18.03 for the simple reason that the agree- H ment to submit to the jurisdiction to the court under clause 18.03 relates

S. HANDELSBANKEN v. INDIAN CHARGE CHROME LTD. [DAYAL, J.] 2f37

to the maintainability of the suit in a Court agreed to by both parties, but does not affect the question whether the proceedings should be stayed in view of the arbitration clause. The plaintiff may well elect to have the dispute decided in Court or it may apply under Section 3 of the Foreign Awards Act or a similar provision in Sweden, England or United States, depending on where the defendant No. 4 fi!es the suit. Such clauses like clause 18.03 do not affect the factum or binding nature of the arbitration agreement in clause 18.02.

54Copy pinpoint54. There is no question of parallel proceedings by reason of the non-obstante clause in clause 18.03. The plaintiff can have the dispute settled by arbitration as agreed in clause 18.02 or it may have the dispute settled in a Court in proceedings instituted by defendant No. 4. However, the plaintiff cannot institute proceedings in any Court against defendant No. 4. It is clear from a reading of clause 18.02 and clause 18.03 that there will be no parallel proceedings. \

55Copy pinpoint55. There is thus no obstacle in the applications filed on behalf of defendant No. 4 and defendants 5 to 11 for staying the suit filed by the borrower/plaintiff under the provisions of Section 3 of the Foreign Awards Act.

56Copy pinpoint56. Coming now to the application filed on behalf of defendants 1 to 3 under Section 3 of the Foreign Awards Act, Mr. Venugopal submitted a E new argument in supporting the conclusion of the courts below. The argument was that so far as defendants 1 to 3 are concerned, Section 3 of the Foreign Awards Act is not applicable in view of the agreement between the borrower .and the suppliers as contained in clause 14 of the contract. He further submitted that since as per clause 14.1, the contract was to be F construed and governed according to the laws of India, the application for stay of suit should be governed by Indian Arbitration Act, 1940 and not by Section 3 of the Foreign Awards Act, which though is an Indian law, yet, in view of the provisions of Section 9(b) of the Foreign Awards Act, this Court should take a view that only Section 34 of the Arbitration Act, 1940 G would apply to the present suit in view of clause 14.1 of the contract.

57Copy pinpoint57. Learned counsel appearing on behalf of the suppliers/defendants 1 to 3 submitted that this point should not be allowed to be raised for the first time at this stage and, at any rate, Section 9(b) of the Foreign Awards Act applies only at the stage 'after the award' and does not apply to the H

288 SUPREME COURT REPORTS [1994] 1 S.C.R.

A stage 'bef.ore award'.

58Copy pinpoint58. However, the question whether Section 34 of the Arbitration Act, 1940 or Section 3 of the Foreign Awards Act will govern the applic!ation filed on behalf of defendants 1 to 3 is concerned, need not detain us, inasmuch as we have already held that th~ suit filed by the plaintiff, as such, B is liable to be stayed in view of the applications for stay filed by the lt:nders i.e. defendant No. 4 and defendants 5 to 11 and, therefore, we leave this question open.

59Copy pinpoint59. The result is that the appeals filed on behalf of defendant No. 4 and defendants 5 to 11 are accepted; the impugned order of the High c Court dated 17th June, 1993 and of the trial court dated 23rd June, 1992 , are set aside and the suit is directed to be stayed as contemplated by Section 3 of the Foreign Awards Act. The orders of the trial court on the application for stay filed on behalf of defendants 1 to 3 are also set aside but in view of our orders on the application filed on behalf of the lenders, D no separate orders are being passed on the application for stay filed on behalf of defendants 1 to 3. Parties are, however, left to bear their own costs of the present proceedings.

R.S.K. Appr.als allowed.